Removal of GST on food unlikely - PM

Prime Minister Helen Clark has said it is unlikely GST on food will be removed, despite growing support for the tax's abolition as consumers struggle to cope with rising prices.

The cost of filling the average supermarket trolley has jumped by more than a quarter in the past year, as the effect of international food shortages hits New Zealand.

A Weekend Herald comparison showed butter, cheese and some varieties of bread had more than doubled in price. Most meat, vegetables and fish were also much more expensive.

But Helen Clark this morning told Newstalk ZB it was unlikely the Government would make any changes to GST.

"GST has been in place since the mid-1980s and that was when schemes like family support, which has now become the much bigger and more significant Working for Families, began," she said.

"Obviously there will be some tax relief announced in the budget and I think it's going to be very, very timely for families."

A petition urging abolition of GST on food is gathering support outside Auckland supermarkets.

Many shoppers the Herald spoke to believed the Government had to act to cut the price of basic food items.

However, Helen Clark told Newstalk ZB price increases for some items, like butter, cheese and milk, were driven by the export prices farmers were getting for their products.

Casual worker Christopher Reekie, who signed the petition at the Onehunga Foodtown on Thursday, said he had started buying milk powder because full milk was too expensive.

Onehunga solo mother-of-three Raewyn Anderson had stopped buying cheese and yoghurt, and was also thinking of switching to milk powder.

Hillsborough travel consultant Julia Wells, 24, said she and her partner, a greenkeeper, could not afford to have a family in New Zealand, and planned to move to Australia.

"They say to go for the healthy stuff, yet that's what's got the highest price markers, so you have to go for the unhealthy stuff."

Child Poverty Action Group is calling for tax cuts to the lower income bracket as an answer to making food affordable, rather than removing GST.

Economics spokeswoman Dr Susan St John told nzherald.co.nz removing GST sounded like a "common sense" thing to do but meant the government would miss out on revenue from high income earners, which would have to be made up elsewhere.

She said 220,000 children and families missed out on the Working For Families scheme because their parents were not in paid work and fixing the anomaly up would be a better spend of Government money.

"If you really want to help the people struggling at the bottom of the heap, then extend the payment," Dr St John said.

She said tax reforms for the lower income brackets would also help to make rising food prices more affordable.

A spokesman for Finance Minister Michael Cullen said a one-off change to GST would not stop international forces pushing up food prices.

"The Government will not change the GST system, as creating exemptions would add extra compliance costs for businesses which would be passed on to consumers," he said.

National's finance spokesman, Bill English, said his party's first preference was to tackle the affordability problem by cutting income taxes.

But the left-wing Residents Action Movement, which started the petition to abolish GST on food, said more than 1000 people had signed in its first two days.

The National Heart Foundation, which has campaigned for five years to have GST removed from "healthy" foods such as fresh fruit and vegetables, said rising food prices made the move urgent.

Public Health Association executive officer Gay Keating called last week for GST to be removed from "nutritious basics" such as fruit, vegetables and milk.

"A bottle of Coke is so much cheaper than a bottle of milk," she said. "We'd be interested in making a bottle of milk much more affordable."

New Zealand is one of only three countries in the 30-nation Organisation for Economic Cooperation and Development (OECD) which taxes food at the same rate as other goods.